Obama's Pipe Dream Could Grease China's Energy Skids

Amy Myers Jaffe, the widely recognized director of Rice University's Energy Forum, is propounding a theory, "By the 2020s, the capital of the energy world will likely have shifted back to the Western Hemisphere, where it was prior to the ascendancy of Middle Eastern megasuppliers such as Saudi Arabia and Kuwait in the 1960s."

As most Fools with a taste for energy can discern, her thesis is based largely on the technological advancements that have been perfected during the past decade. Those steps have rendered it progressively more possible for oil and gas companies and their oilfield service helpers to readily extract the "plentiful hydrocarbons trapped in hard-to-reach offshore deposits, on-land shale rock, oil sands, and heavy oil formations."

Hydrocarbons from north to southThose challenging deposits, in their various forms, stretch from the frigid waters surrounding Alaska and northwestern Canada, through much of the U.S., and south to Brazil, Argentina, and other South American nations. Unfortunately, however, Ms. Myers' estimated potential production increase of at least 8.5 million barrels a day from the Americas could be hindered by threatening geopolitics.

Obviously, the most immediate issue in the expanded production and use of oil in North America involves a kerfuffle over TransCanada's (NYS: TRP) desire to expand its Keystone Pipeline System, which begins at the Athabasca Oil Sands in northeast Alberta, Canada, and, if the company has its way, eventually would run to refineries along the Texas Gulf Coast.

But a decision on whether to permit the line's proposed extensions and capacity increases to allow more Canadian crude to be transported to the refineries has been put on hold (not surprisingly until after the 2012 quadrennial election) by the Obama administration. The administration and the State Department have been squeezed between two of their primary constituencies: environmentalists, who seek to have the entire project scrapped, and labor unions, who view its go-ahead as a source for jobs.

Would that I'd studied that muchPresident Obama maintains that the delay was mandated by the State Department in order that the project's environmental aspects might be considered more completely, despite a pair of studies on those issues that spanned three years. On that basis alone, it's tough to dispute a conclusion by Jack Gerard, director of the American Petroleum Institute, that, "This is clearly about politics and keeping a radical constituency opposed to any and all oil and gas development in the president's camp for 2012."

It's worth noting, however, that the extended line, in addition to transporting crude originating in Canada, would also constitute dependable and lower-cost shipping opportunities for expanding volumes of crude from the Williston Basin in the north-central U.S. Further, it would provide raw materials replacements for the refineries' dwindling crude supplies from Venezuela and Mexico.

We've surrendered the final optionNotwithstanding the delayed Keystone XL decision, TransCanada is hardly without other options for dealing with expanding volumes of Canadian crude. At the top of the list is the alternative of sales to Asia, primarily China, using either TransCanada's Calgary neighbor Enbridge's (NYS: ENB) Northern Gateway Pipelines or Kinder Morgan's (NYS: KMI) Trans-Mountain line. But given the need in the U.S. for nearly 10 million barrels a day of imported crude, such (an understandable) switch by TransCanada would place our country in the position of continuing to obtain imports from far less dependable sources.

On a related front, Enbridge has recently agreed to pay $1.15 billion for ConocoPhillips' (NYS: COP) half interest in the Seaway Crude Pipeline System's pipeline, which connects the Gulf Coast refining complex to the primary U.S. storage facility at Cushing, Okla. The flow of the Seaway line will now be reversed to carry oil from Cushing to the refineries, thereby reducing the current glut at the Oklahoma facility.

China's expanding reserves in the WestMoreover, while Ms. Jaffe's contention of a likely return of energy's de facto capital to the Western Hemisphere is packed with logic, it also appears that by the time the move has been completed, a surprising percentage -- I won't attempt more specificity -- of the crude that's buried in our half of the world will be counted among China's reserves. In just the past year-and-a-half, Chinese companies have forked over about $15 billion to better position themselves in Alberta's oil sands.

In the U.S., CNOOC has reached a pair of deals with Chesapeake (NYS: CHK) -- one each in the Niobrara oil play and the Eagle Ford Shale -- for what ultimately will amount to a total cost approaching $2.4 billion. And in South America, China continues to expand its presence in the continent's energy scene. Included in the countries where the Chinese have significantly cast their footprint are Venezuela, Brazil, and Argentina.

The Foolish bottom lineFor my money, then, unless it's altered soon, the administration's Keystone XL postponement could work to the severe detriment of U.S. energy interests and consequently to the benefit of China. From an investment perspective, I'm inclined to monitor TransCanada carefully, given its alternatives regarding the ultimate buyers of its Canadian oil. I'll do so in part by placing the company on my version of the Fool's My Watchlist. I suggest you do the same.

Looking for more ideas? The Motley Fool has created a new special oil report titled "3 Stocks for $100 Oil," which you can download today, absolutely free. In this report, Fool analysts cover three outstanding oil companies. To get instant access to the names of the three oil stocks, click here -- it's free.